Saturday, January 19, 2013

Nautilus' Solwara 1 deep-sea project in limbo

By Adrian Pocobelli

After last year’s funding dispute with the government of Papua New Guinea , Nautilus Minerals is continuing to suspend development of its erstwhile flagship Solwara 1 deep-sea mining project.
The company had been developing a high-grade, copper-gold deposit at
1,600m depth in the Bismarck Sea, within the territorial waters of
PNG.
The sea floor massive sulphide deposit has an indicated
resource of 1.3 million tonnes grading 7.2% copper, and an inferred
resource of 1.5 million tonnes at 8.1% copper.Production had been
scheduled for late 2013, but in June 2012, Nautilus announced that the
government had not met its contractual agreement to cover 30% of
development costs, a figure that had reached US$23.5 million in January
2011. The PNG government countered that Nautilus had failed to meet its
obligations under the agreement, meaning it could cancel the contract.Few specifics of
Nautilus’ alleged shortcomings were made public, apart from the company
saying that the dispute concerned an equity-options agreement. An email
sent to PNG’s Mineral Resources Authority seeking comment was not
answered.Nautilus continued
developing Solwara 1, despite the government’s stance that the
joint-venture partnership had been nullified, and later claimed a
further US$51.5 million for costs that were incurred up to September
2012, resulting in an estimated US$75 million in unpaid liabilities.
Although the company sought to negotiate a settlement, the PNG
government opted for arbitration, and appointed former Australian Chief
Justice Murray Gleeson to oversee the dispute.On Nov. 13 Nautilus
changed course, announcing in a conference call that it had stopped
building new equipment for Solwara and laid off 60 staff to preserve
capital.In a telephone
interview, interim president and chief executive Mike Johnston said that
Nautilus still hopes for a positive outcome. “We are committed to Papua
New Guinea and the Solwara 1 project, and we’re confident that this
dispute will be resolved. "But having said that, we have a number of
options around the world that we can look at.”The company says the
project is more than halfway finished, with pumps, subsea connectors
and a half-built riser and hoister. Johnston estimates offshore
development would cost $450 million, and notes that the equipment, which
is wholly owned by the company, is portable, meaning the company can
recoup some of its losses if Solwara 1 remains in limbo.Following news of
the postponement, Nautilus’ share price dropped from 72¢ to 35¢ and
bottomed at 27¢ on Dec. 7. On Jan. 7, the stock bounced back to 58¢ in
response to a threatened, semi-serious 97¢ per share bid by disgruntled
shareholder Michael Bailey. Major shareholders include Metalloinvest Holding, Anglo American (AAL-L), MB Holding and Teck Resources (TCK-T, TCK-N).Nautilus has $90
million in cash with further assets in Tonga, where it plans to mine
polymetallic nodules the size of golf balls — rich in copper, nickel,
manganese and cobalt — that lie at depths below 4,500 metres. The
company is also continuing an exploration program with funding from the
Tongan government.Nevertheless, the
disappointment of Solwara 1 is a setback for deep-sea mining, with
industry observers taking note of the project’s economic viability.Solwara 1 faces
opposition from environmentalists, who believe deep-sea mining could
pollute surrounding waters, poison food supplies and harm the ecosystem. A report by Helen Rosenbaum for the Deep Sea Mining campaign states
that “Foremost in people’s minds is the fear that PNG is being used as a
laboratory for the experiment of seabed mining, and that insufficient
research has been conducted on deep-sea ecosystems and the impacts of
seabed mining on marine species and coastal communities.”The Solwara 1
project is 30km from the coast of PNG, while the proposed extraction
area stretches 110 metres. The PNG government granted the company an
environmental permit in December 2009 and a mining lease in January
2011.Nautilus has
responded to concerns about the environmental impact, but opposition is
growing from activists, who appear to have been encouraged by local
politicians.Johnston is still
optimistic about the company’s prospects and the emerging industry. “We
firmly believe in deep-sea mining,” he says. “There are an enormous
number of resources on the sea floor. "Seventy percent of the planet is
covered in water. "Reports conducted by the International Seabed
Authority (ISA) put the tonnage of metal in the ocean on par with all
the known reserves on land.”ISA is an
international organisation that was established by the United Nations in
1982 to manage rights to mineral resources on the ocean floor,
establishing contracts with governments and private enterprises to
explore the ocean seabed. On Oct. 31, Russia signed a 15-year contract
with ISA to search for polymetallic sulphides in the Atlantic Ocean,
while on Aug. 31, companies from China and Japan applied for similar
exploration permits in the western Pacific Ocean.Johnston believes
Canada could do more to encourage deep-sea mining at home. “We consider
ourselves the leader,” he says. “We’re a little disappointed by the
Canadian government and their (hesitance) to support companies like us. " Canada is the leading light of the industry, and it needs to take some
of that leadership offshore.”

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